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A two-storey building was erected next to the Winter Palace in 1764-1766 by the architect Yuri Velten commissioned by Empress Catherine II. It successfully combined late Baroque and early Neoclassicist elements.

In 1767-1769 the architect Jean-Baptiste Vallin de la Mothe built a pavilion on the Neva River embankment with a grand hall, several living-rooms and an orangery for the Empress’s quite rest. Decorative pattern of the building follows Neo-classical canons as well as typical for this style austere proportions which reference the architectural structure of the Winter Palace. The rhythm of the Corinthian colonnade on the second level of the pavilion emphasizes the architectural unity of two buildings quite different stylistically.

The southern and northern pavilions were then connected by the Hanging Garden (raised to the level of the first floor) with galleries on its both sides. The whole architectural complex was named the Small Hermitage after the purpose of the northern pavilion where Catherine II hosted entertaining evenings with games and plays which she called "small hermitages". Fine art collections placed in the galleries running along the Hanging Garden have initiated the collections of the imperial museum.

The famous Peacock Clock is located in the Pavilion Hall; the galleries of the Small Hermitage host the exhibition of Western European paintings and decorative art works.